Pernod finance md underlines importance of emerging markets

06 September, 2011

ByChristian Davis

The importance of the so-called emerging markets such as those in China, India, was underlined by the Pernod Ricard management team in individual briefings in London today (Tuesday September 6), following the announcement of the group’s annual results last week.

Gilles Bogaert, Pernod Ricard’s managing director in charge of finance, in an exclusive interview with Drinks International, outlined that the front line BRIC countries (Brazil, Russia, India and China) along with Mexico, Turkey, Vietnam and Africa, already accounted for 37% of Pernod Ricard’s net sales and 38% of its operating profits.

He said that the US remained its number one market with 15% of net sales followed by its traditional dominance of France (9%). Number three is China and India was now ahead of Spain. Peering at his figures sheet with a calculator, Bogaert said both were between five and six per cent but “Spain was nearer 5% while India was nearer 6% and growing”.

He said the “newer countries were becoming more powerful both politically and with their economic influence”. Their emerging middle classes, while they may have different tastes and consumption patterns, were nevertheless, trading up to more expensive products. Bogaert, who has worked for Pernod Ricard in central and South America before taking up his current position in 2009, pointed out that profit margins were better in most of these countries, particularly China, than the mature western markets.

He emphasised that PR was in a better position to exploit these markets than its major rival, Diageo. Pernod is the number one global player in India (number two overall to the UB Group) and as far as Asia overall was concerned, it was the only one that could offer a major cognac brand (Martell) and a portfolio of whiskies (Chivas Regal, Ballantine’s, Royal Salute, The Glenlivet and Jameson).

With the takeover and break up of Seagram, Pernod got its three genuine whisky brands. Most Indian whiskies are made from molasses so are not regarded as genuine whisky in global terms. Blender’s Pride, Royal Stag, which has volumes as large as Absolut, and Imperial Blue are made from grain and imported malt whisky from Scotland. Cheap Indian whiskies retail for between US$2-3 while Imperial Blue sells from approximately $5, Royal Stag for $7-8 and Blender’s Pride for between $10-11. Chivas Regal, with all the import tariffs, retails for around $60 in India.

Once the European Union and India sort out the free trade agreement and the onerous import tariffs are lifted, Pernod is in the best possible position to exploit it, maintains Bogaert. The company has invested heavily in Chivas and Absolut in India in anticipation of the barriers coming down.

Turning to other markets, Bogaert said that scotch was growing in nearly all markets. He said it was replacing tequila in Mexico as younger drinkers regarded their national spirit as the tipple of their father’s. Scotch and Absolut vodka was also proving popular with Brazilians, putting cachaca under pressure.

Turning to Spain, he said that the poor performance of scotch was essentially down to a decline in going out by Spaniards. Nevertheless, Ballantine’s, the world’s number two scotch and Europe’s number one, still performed well, as did Beefeater gin which was up in Spain.

Earlier Bogaert had said that while western Europe was down, eastern Europe, including Poland, Russia and Ukraine was up 9% on the year before. Five of the company’s top 14 brands – Absolut, Chivas Regal, Jameson, Havana Club, Martell, The Glenlivet and Royal Salute, had all reported double digit organic sales growth.

Christian Porta, chairman and CEO of Chivas Brothers, Pernod’s premium spirits division, was asked whether the company could keep up with the worldwide demand for scotch. He said the company was constantly looking at projections and long term forecasts. He quipped that there was no better place than having to deal with rarity and scarcity and the company was more interested in value than volume growth.